By Published on .

Americans are the biggest spenders on the planet. Collectively, U.S. consumers spend more each week than the annual gross domestic product of Finland. At that pace of spending, the average American household's economic outlays for all goods and services reached a rather grand $1,500 a week in 2005, according to the U.S. Bureau of Economic Analysis.

Some fraction of that consumer spending is, of course, the result of our basic need for food, clothing, shelter and transportation. But really, how many households need two homes, three vehicles and four TVs? It's clear that a great deal of, if not most, consumer spending is driven by desire, not need. Not many of us who work in advertising and marketing would have jobs if all we did was serve the basic human needs of sensible consumers.

We who work in marketing may not want to admit it, but the fact is we desperately need consumers willing to spend every dime they make and then some on items such as $50,000 SUVs and million-dollar vacation homes. If Americans ever started saving money like those prudent Japanese consumers, countless industries besides our own would be on the ropes.

Real-after inflation-consumer spending in the U.S. rose 23% in the past 10 years, while the number of households was up only 14%. If spending had risen at the same rate as households, those families or other household types would have spent $109.50 less a week than they in fact did in 2005. That seemingly small sum, when added up, would have subtracted more than $640 billion from consumer spending, and the U.S. economy would now be in a deep funk.

That extra $109.50 a week consumers spent last year paid a lot of advertising and marketing salaries. So the key question is this: Will U.S. consumers continue to consume as they have in the past decade? Or will they-horrors!-get real and start living within their means? We may not think that we've bet the ranch on the answer. But we have, because, besides our jobs, the rising value of both of our homes depends on the outcome.

Here then are three reasons why you should be very worried about the future of consumer spending followed by three reasons why you might be able to relax, for now. First the bad news:


A record 1.5 million babies were born to unwed mothers in 2004; that's 36% of all births, up from 28% in 1990. (Fewer than one in four of those new single moms was a teenager; the vast majority were adults age 20 years old or older.)

This is important because single mothers have a median income of less than $27,000 a year, roughly one-third that of married couples with children. During the past five years, the number of single moms rose 11%-more than twice the 4% growth rate for married couples with children.

During the next five years, the ranks of single moms are likely to grow even faster and married mothers with children even slower. One reason is that the highest concentration of unmarried women who have a child is in the age range of 20-29. The Census Bureau projects 1.2 million more women aged 20-29 will have children by 2010, a 6% increase.

By contrast, three-quarters of all married couples with children are in the range of 30-49, an age segment with no projected growth in the next five years. The top end of that age segment, consumers 40-49, was up 6% over the past five years but is projected to shrink 3% in the next five.

The "Income Prospects" chart (above) summarizes the high growth of households with below-average income and the slowing or stagnant growth of most, but not all, households with above-average income. Married couples with no kids have above-average income and are projected to grow faster in the next five years. But a big part of that married/no-kids growth will be among ages 65-plus, where income is below average due to widespread retirement.

Another trend that will dampen household income and spending is the rapid population increase among Hispanics, where average household income is only $45,900. The Hispanic population is projected to increase 14% over the next five years (see "Growth vs. Income" above). By comparison, white non-Hispanics, where household income is $65,300, are projected to edge up only 1% in the same period, according to the Census Bureau.


The Census Bureau recently reported that 37 million people in the U.S. lived in poverty in 2004. That's 5.4 million more than in 2000-a 17% increase in a period when the number of people who weren't living in poverty edged up 2.5%.

The Census Bureau also reported that a record 45.8 million people in the U.S. had no health insurance in 2004, 6 million more than in 2000. That's a 15% increase compared with a tiny 2% increase for people with health insurance. But that same Census Bureau survey also found 11.9 million consumers who had an individual-not household-income of $90,000 a year or more. That's a real increase of 16% since 2000 in very affluent consumers. Since high-income men often marry high-income women, the result is increased concentration of household spending power at the top of the scale (see "A Rich and Poor Nation" above).

The highest-income 20% of U.S. households has an average annual income of $151,600. But the majority-60%-of U.S. households lives on a little more than one-fourth of all consumer income, an average of about $27,000 each.

The reason for this widening gap between the small top and the large bottom of the income scale is the shift from a largely domestic and manufacturing-based economy to a more global and knowledge-based economy. That shift means more employers will pay a higher premium for a relatively few highly educated workers but pay less to those without professional job skills.

The danger going forward is that the formerly large middle class is shrinking, and we are depending on a relatively small fraction of affluent households to provide the bulk of future consumer spending growth. If the affluent, but aging, baby boomers begin saving more of their income for retirement, consumer spending could take a big hit.

Also, consumer spending has kept growing in the recent past in large part because homeowners across the income spectrum have been able to borrow heavily against their homes' rapidly rising value. That strategy may not work in the near future if home values flatten, interest rates rise and banks get more cautious about consumer lending.


As he was about the task of asking factory workers at Delphi Corp. to take a 50%-67% cut from their average pay of about $27 an hour, Steve Miller, the new CEO of the bankrupt auto-parts maker, noted in October: "The world pays knowledge workers far more than it pays manual, industrial workers."

That fact has been known for quite a while. But college enrollment and graduation figures would suggest that for the most part it's only women who are paying attention. Women are going to college and graduating in substantially greater numbers than men.

Between ages 18 and 24, for example, there are a few more men than women. But in college there are 23% more women enrolled than men. If men went to college at the same rate as women, there would be 1.3 million more young men enrolled in higher education today.

Between ages 25 and 34, there is approximately an equal number of men and women. But in that age group, there are 1.1 million more women with college degrees than men. This is not a trivial matter because it means those million men are giving up the substantially higher lifetime income, and spending, that they might have had if they were college graduates.

This deficiency in higher education among men hasn't always been the case. Among baby boomer men aged 50-59, one-third are college graduates, the same percentage as women 25 to 34 years old today.

A fully employed college graduate earned, on average, twice as much in 2004 as a similarly employed high-school graduate, and that huge gap has been widening. Over the past decade, real wages fell for men who didn't get high-school diplomas and rose less than 4% for those who did graduate from high school. By contrast, in the same 10 years, men and women with bachelor's degrees saw their real wages rise 9%-13% (see "Getting Ahead and Falling Behind" above).

The decline in manufacturing jobs and rise in office-based professional and managerial work mean the roster of women workers is increasing faster than men. Women still account for a minority of total employment, but since 2000 they have held a majority of professional or managerial jobs.

The only problem with this is that full-time working women with bachelor's degrees still on average earn 32% less than similarly educated and employed men. Unless more young men start going to college like their baby-boomer fathers did, or more women start achieving pay parity, consumer income and spending growth will suffer.

These three trends taken together present a disturbing picture of a widening gap between the haves and have-nots, and a rising underclass of poorly paid and underinsured people living on the financial edge. That is not a recipe for robust consumer-spending growth.

Those of us who depend for our livelihood on consumers continuing to spend as they have in the past should be concerned about these trends. They may not be entirely visible to us in our daily lives, but they are real and should be taken into account when we think about our future.

But this is a big country: The population will hit 300 million on Sept. 15, by my calculation. Some parts of our consumer economy are doing very well, thank you. So in the spirit of equal time for other points of view, here are three trends that suggest future consume-spending growth is assured. The good news:


American men may not want to admit it, but since 2000 it has been women's rising economic clout that has kept consumer spending up despite a recession, stagnant wages for men and weak labor-force growth. Women's rising educational attainment and rapidly increasing income have profound implications for future consumer spending growth as well as for advertisers.

Women are taking many of the better-paying and more secure jobs. During the first half of this decade, for example, there was an increase of about 4 million full-time workers aged 25-64 with college degrees. Sixty percent of those better-paying jobs were taken by women despite the fact that they're only 41% of all full-time workers of that age.

We shouldn't be surprised since women have earned nearly 60% of all bachelor's and master's degrees awarded during the past five years. But the extent to which women are outpacing men in obtaining the better knowledge-economy jobs is graphically illustrated by the "Men and Women at Work" chart (above). Women college graduates have increased their full-time work-force participation at more than twice the rate of men since 2000.

The result is that women's income, while still lagging behind men's, is rising much faster. Over the past five years, full-time working women aged 25-64 have seen their real (inflation-adjusted) median income rise 4% compared with a 3% decrease for men.

The pay-parity gap is closing. That, combined with the fact that more women have white-collar jobs in industries such as education or health care (jobs less likely to be outsourced), has meant greater stability in terms of family income and spending.

Women are now 47% of all full- and part-time workers in the U.S., but they're almost 52% of all professional or managerial workers and 64% of sales and other white-collar workers. Women are 54% of the nation's Realtors, for example, and will clearly benefit from the rising demand for second homes.

The impact of women's rising income and educational attainment extends far beyond just adding more cash to their consumer spending. It changes what they buy and often how they buy it. This trend is a major causal factor in the rising preference for more healthful or organic foods, more natural ingredients in cosmetics and more environmentally friendly products, as well as more Internet shopping from office workplaces.


During the past decade, the number of U.S. homes valued at more than half a million dollars tripled to more than 6 million units. And now more than 5 million American homeowners-about 5% of households-own two or more homes. During that same period, the median value of stock portfolios at least tripled for about 22 million U.S. households.

We shouldn't be surprised by these figures. By my projections, the number of U.S. households that spend more than $100,000 a year on everything-with lots of money for expensive second homes and worldwide travel-is growing by more than 7% a year compared with an overall household growth rate of around 1%. These households, when combined with the really big spenders, are what we call the mass affluent.

They're growing rapidly and account for a disproportionate share of consumer spending. The U.S. Bureau of Labor Statistics reports that only 13% of households it surveyed had an annual income of $100,000 or more, but those households accounted for almost half of all consumer spending on jewelry, other lodging and related travel expenses.

Granted, a mere hundred grand can seem like living on the edge in New York or Chicago. But nationwide, families with six-figure incomes are responsible for nearly a third of total consumer spending. It may be more if we include unrecorded spending on grandchildren.

These households have been the beneficiaries of the dramatic increase in asset values during the past decade, and they've also been the recipients of large tax cuts over the past several years. In addition, many of them have high job skills that earn them far above average wages in the knowledge economy.

Could their asset values diminish significantly in the near future or their job skills become less valuable? Not likely. Among these affluent households are millions of extraordinarily creative entrepreneurs. They don't just make and spend money-they spread it around to employees, subcontractors and other suppliers.

The influence of the mass affluent on our consumer economy extends well beyond their personal household spending. Transitioning from a manufacturing-based economy to a more knowledge-based one has meant greater reliance on intellectual capital instead of factory equipment capital. Intellectual capital has at least one big advantage: It creates and spreads wealth with the power of ideas rather than the more confined power of machinery.

If our nation's intellectual-capital assets can spread fast enough, then the mass-affluent segment of consumers will continue to grow at least as rapidly as it has in the recent past and sustain our consumer economy for years to come.


Baby boomers have created more wealth than any preceding generation in part because of their cohort size (78 million Americans born 1946-64; 26% of the population), but in large part because so many of them went to college. The best-educated men in America are 55-to-59-year-old baby boomers. But the oldest boomers are turning 60, and some people are starting to worry about them.

There have been more than a few articles about looming economic collapse because baby boomers are on the verge of retiring. The story line is that they will sell their stocks and their big homes, and stop spending as they wait for the end. Anyone who's paid attention to boomer behavior over the past several decades knows that nothing of the sort is likely to happen.

Baby boomers have delayed or transformed every life-stage transition they've ever been involved with, and they're likely to do the same for retirement. Besides the fact that nearly one-third had later-born children that may need college tuition paid, there are other reasons why they will almost certainly delay retiring. The most important is that nearly 60% of older baby boomers are professional, managerial or other white-collar workers.

The average income for households headed by 50-to-59-year-olds is $75,000 a year. In many cases, they're making more than that and enjoying their work. For millions of older baby boomers, the pressure to retire won't be as great as the desire to maintain their present income and present lifestyle.

Considering how long they're likely to live, baby boomers who wanted to stop working would need retirement savings of at least $2.5 million to maintain their current spending patterns. A few have that much, but most boomers will just keep working and make it very fashionable to do so.

The long-term trend toward early retirement has reversed. Today about 65% of men and 50% of women aged 60-64 are in the work force. But at ages 65-69, that percentage drops to 37% of men and 29% of women.

During the next 10 years, baby boomers will fill that sixtysomething space; I conservatively project that will mean another 9 million workers aged 60-69 who will add at least $400 billion a year to consumer spending (see "Senior Management" on P. 4).


So three reasons to be pessimistic about the future of consumer spending and three reasons to be optimistic: Do they cancel each other out, or will one side prevail? The answer depends in part on how well we understand U.S. consumers.

Former Sen. John Edwards had it almost right when he said there are two Americas. There are actually multiple Americas. Among them are: the very wealthy, the moderately affluent, the diminishing middle class, the recent immigrants, the urban poor and others.

More than ever, our jobs in marketing require that we learn a lot more about the multiple Americas and more fully understand exactly which one of them we're attempting to reach, and how our messages are likely to be received.

Stagnant wages, rising poverty, lack of health insurance and the growing army of undereducated men are serious problems. But it is my belief that increasingly wealthy and influential women combined with more affluent and aging baby boomers will look at the problems described above and craft solutions in new and creative ways.

The reason for my optimism is our progressively more knowledge-based economy. It means that we can and will know more about our consumer economy's strengths and weaknesses, and how to prevail over its weaknesses.

History is replete with examples of economies that faltered because leaders didn't know what was going on. Within the business community, that's not our problem today.

Peter Francese founded American Demographics and now is demographic trends analyst for Ogilvy & Mather. He is the author of three consumer marketing books ("Marketing Insights," "Marketing Know-How" and "Capturing Customers") and the co-author of "Health Care Consumers."

Most Popular
In this article: